Investors Pile Into Dividend ETFs Despite Tax Threats

By Michael Aneiro

Investors are still flocking to equity dividend exchange-traded funds despite looming changes in tax treatment for dividend-paying stocks. John Prestbo explores the issue for MarketWatch today, saying inflows into U.S.-listed equity ETFs in 2012 are up 23% from the end of 2011, but all of that money hasn’t been spread around evenly (VanguardGroup has gotten a third of it) nor has it gone to the funds with the highest yields. Prestbo looks at the top nine dividend ETFs by size, each now over $1 billion:

Vanguard Dividend Appreciation (VIG) attracted the most, raking in more than $2.1 billion, or 23.6% of the total. As a result, the ETF’s assets swelled by 22% to more than $12 billion, making it the largest dividend-oriented fund. In second place was Vanguard High Dividend Yield Index (VYM), which took in $1.5 billion, or 11% of the total, boosting the fund’s assets to $4.2 billion. Those two Vanguard funds currently hold 34% of all dividend ETF assets, according to Morningstar….

[The fund inflows don’t correlate well with the yields. The Vanguard inflow champ has the lowest yield of the lot, for example, while iShares Dow Jones Select Dividend Index Fund (DVY) ranked second in yield of the seven domestic funds but fourth in new money. The highest-yielding domestic ETF in this group, WisdomTree Dividend ex-Financials Fund (DTN), had the smallest inflow.

Apparently, considerations other than yield are playing a role. What they might be is anybody’s guess. The implication is that investors would be wise to look beyond popularity — fund inflows or asset levels — in deciding where to put their money.

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DECEMBER 17, 2012 1:51 P.M.

Tortoise wrote:

Why not consider a Midcontinent refiner like NTI as an income investment? PSX, HFC, MPC are all buys right now. NTI is an MLP, so it throws off a high distribution. Great for a taxable account.

WCS (Western Canadian Select) is $32 cheaper than WTI (West Texas Intermediate) now. Do some reading about it online. That means refiners running WCS are booking a spread of $50 (price between WCS and Brent crude).

NTI running 30% WCS. It's a gem of an income investment. All of the Midcon refiners have strong upside.

Amey Stone is Barron’s Income Investing blogger and Current Yield columnist. She was formerly a managing editor at CBS MoneyWatch, MSN Money and AOL DailyFinance. Her responsibilities included overseeing market coverage and personal finance topics. Prior to those roles, she was a senior writer at BusinessWeek where she authored the Street Wise column online and contributed to the magazine’s Inside Wall Street column. Topics covered included economics, corporate finance, Fed policy, municipal bonds, mutual funds and dividend investing. She co-authored King of Capital, a biography of Citigroup Chairman Sandy Weill. She is a graduate of Yale University and Columbia University’s Graduate School of Journalism.